Productivity grew faster than previously thought

(AP) WASHINGTON - U.S. companies got more output from their workers this spring than initially thought. The modest gain in productivity may mean that hiring could stay sluggish this year.

The Labor Department said Wednesday that productivity increased at an annual rate of 2.2 percent in the April-June quarter, up from an initial estimate of a 1.6 percent gain. Labor costs rose at an annual rate of 1.5 percent, slightly lower than the 1.7 percent initially estimated.

The government said the economy grew at an annual rate of 1.7 percent in the April-June quarter, up slightly from an initial estimate of 1.5 percent. The increase led to higher productivity gains. Productivity is the amount of output per hour worked.

Rising productivity can boost corporate profits. It can also slow job creation if it means companies are getting more from their current staff and don't need to add workers.

Still, there are limits to how much companies can squeeze from their staffs. When that happens, productivity slows and companies typically must hire more workers to keep pace with demand.

Productivity declined 0.5 percent in the January-March quarter. One reason productivity improved in the second quarter is hiring slowed to just 75,000 jobs a month from April through June. That's down from an average of 226,000 a month in the first quarter.

U.S. employers added 163,000 jobs in July, the best month of hiring in five months. The unemployment rate edged up to 8.3 percent. Hiring probably won't accelerate from that level unless growth picks up or productivity slows, economists say.

The government will release the August employment report on Friday. Economists forecast that the economy added 135,000 jobs last month, and the unemployment rate stayed at 8.3 percent.

The Federal Reserve closely follows changes in productivity and labor costs to make sure that inflation pressures are not getting out of control.

Over the past year, productivity has risen 1.2 percent. That is far below the 3 percent average productivity growth turned in during 2009 and 2010. Those gains were a result of massive job layoffs during the recession as companies slashed costs in the face of falling demand.

Economists said higher productivity is typical during and after a recession. Companies tend to shed workers in the face of falling demand and increase output from a smaller work force. Once the economy starts to grow, demand rises and companies eventually must add workers if they want to keep up.